Skip to main content

Author: Mignon Lamia

Introducing ESG Watch: Holding “responsible” investment to its promises 

Written by Mignon Lamia on . Posted in Uncategorized.

Inclusive Development International’s new ESG Watch website and company database illustrates how ESG investment routinely flows to companies linked to human rights abuses. 

Today, Inclusive Development International launched ESG Watch – a company database and website that tracks over $39 billion in environmental, social and governance (ESG)-focused investment flowing to companies that are linked to serious social and environmental harm. ESG Watch provides a platform to amplify the voices of communities affected by harmful corporate activities, publicize evidence of harm and hold financial services firms and investors accountable for fulfilling their human rights responsibilities.  

Companies found to be benefiting from this “ESG-washing” include fossil fuel and mining giants facing numerous human rights complaints, weapons manufacturers implicated in war crimes, and over a dozen companies that maintain business ties to Myanmar’s military despite its well-documented commission of genocide and crimes against humanity.     

“Any company that maintains commercial or business ties with the junta are ultimately complicit in the crimes and violations committed against the Burmese population in Myanmar,” said Mike, a human rights defender with the Blood Money Campaign, who uses a pseudonym for security reasons. “None of these companies should be rewarded with the financial and reputational benefits that come with high ESG ratings and investments by ‘responsible’ investors.” 

All financial firms and investors have a responsibility to avoid contributing to human rights abuses through their investment products, but especially those that describe and market their products as environmentally and socially responsible options. When these firms find themselves linked to human rights abuses through their products, they have a responsibility to use their leverage to address the harms. The ESG Watch website explains why so many ESG investment products fall short and who is responsible, including the role of passive investing approaches that rely on ESG-labeled investment indexes that are created and marketed by MSCI, FTSE Russell, S&P Dow Jones Indices and others.  

We created ESG Watch to call these actors out and demonstrate the need for reform, because if they lived up to their promises to the investing public, they could be a powerful force to incentivize responsible business conduct.  Exposing ESG-washing and publicizing the environmental, social and human rights impacts of corporations is particularly important at this time, as the European Commission is rolling back its proposed mandatory human rights due diligence and sustainability reporting directives and the new U.S. administration is dismantling climate disclosure and other environmental regulations. 

“The ESG investing industry needs to be held accountable to its human rights responsibilities, even as the very notion of responsible investing is under attack from the political right,” said David Pred, Inclusive Development International’s executive director. “Some asset managers may be retreating from ‘ESG’ labeling and rhetoric amidst these attacks, but they will continue to cater to the significant consumer demand for responsible investing options, which isn’t going anywhere. We cannot let that demand be coopted by false solutions—no matter how they are labeled.” 

When misapplied, the ESG label can do more harm than good 

When companies involved in human rights abuses benefit from ESG-focused investment, it not only betrays would-be ethical investors by directing their investments to unethical companies, it also poses a huge barrier for advocates and affected communities seeking remedy and accountability for those abuses.   

“Harmful companies cite high ESG scores or their inclusion in ESG investment indexes and funds as proof of their good human rights and environmental practices all the time,” said Inclusive Development International’s senior legal & policy associate Coleen Scott. “The ESG stamp of approval makes it harder to convince shareholders, lenders and other key stakeholders that the company needs to change.”   

We invite fellow advocates and affected communities to contribute to the database.  

The 28 companies currently included in the database—all of which Inclusive Development International and our partners are familiar with through ongoing advocacy and case work—represent a fraction of the harmful companies that are benefitting from ESG investment. We will be working with civil society partners and affected communities around the world to add new companies to the database on an ongoing basis, and to hold them and the ESG investment industry accountable.  Visit the contribute page to learn more.    

The ESG Watch company database reveals the extent of ESG investment going to a number of notoriously harmful corporations.  

Each company profile in the ESG Watch database presents evidence of the company’s human rights and environmental abuses alongside a tally of ESG-labeled funds that own shares in it, and the value of those shares. For example:  

  • TotalEnergies, a top contributor to global carbon emissions that is linked to numerous human rights controversies, including related to its East African Crude Oil Pipeline, benefits from over $1.6 billion in ESG investment.   
  • Rio Tinto, one of the world’s largest mining companies and the subject of numerous human rights and environmental complaints, benefits from over $480 million in ESG investment.  
  • Heidelberg Materials, a cement manufacturer accused of developing mines and factories over the objections of local and Indigenous communities in multiple locations, benefits from over $300 million in ESG investment.  
  • Elbit Systems, a defense firm accused of selling drones and drone parts to the Myanmar military, benefits from over $26 million in ESG investment. In total, 16 companies with business ties to Myanmar’s military are benefitting from over $36 billion in ESG investment, according to ESG Watch.    

United Nations headquarters in Geneva

Our submission to the UN Working Group regarding ESG investing and human rights

Written by Mignon Lamia on . Posted in News.

Inclusive Development International has responded to a call for input from the UN Working Group on Business and Human Rights as it prepares a report on the topic of “Investors, ESG and Human Rights.” We applaud the Working Group for focusing its attention on the important—though often underappreciated—implications of ESG investing for human rights and corporate accountability.

Inclusive Development International has responded to a call for input from the UN Working Group on Business and Human Rights as it prepares a report on the topic of “Investors, ESG and Human Rights.” We applaud the Working Group for focusing its attention on the important—though often underappreciated—implications of ESG investing for human rights and corporate accountability, something we have been focused on for several years as part of our “Stop ESG Washing” campaign. 

In our submission, we outline systemic problems in mainstream ESG investing that not only prevent the industry from delivering on its promises to consumers, but more importantly, create a system of ESG washing that undermines efforts to hold companies accountable to their human rights responsibilities. 

Our interest in ESG investing stems from years spent investigating the corporate and financial actors behind harmful investment projects, during which we regularly found that ESG-labeled funds were invested in corporations causing and contributing to human rights violations—including mining companies that pollute and grab land without accountability, construction companies that cut corners leading to death and destruction, and dozens of companies that are propping up Myanmar’s genocidal regime. 

ESG investment not only benefits these companies financially, but it can shield them from accountability. That is because many investors and lenders see a company’s high ESG ratings and inclusion in ESG-labeled funds as a “stamp of approval,” so are less likely to scrutinize its practices or to pressure the company to take corrective action in the case of human rights abuses. This cuts off an important avenue for advocacy, undermining efforts by communities and human rights defenders to secure redress.  

In our comments to the Working Group, we emphasize the role of two types of actors in directing ESG-labeled capital to harmful companies: 

  1. ESG index providers, the firms that create and maintain ESG-labeled indexes, which form the basis of many ESG-labeled funds
  2. ESG ratings providers, the firms that assess and rate companies’ ESG performance, helping to determine which are included on ESG indexes

Industry leaders MSCI, FTSE Russell, and S&P Dow Jones offer both sets of products and services, giving them an enormous amount of power and leverage within the system. As we argue in our submission, they have a responsibility to use their leverage with companies that appear on their indexes to prevent or mitigate any human rights abuses those companies are causing or contributing to. That includes the responsibility to conduct due diligence to identify abuses and the responsibility to act when abuses are identified, including by downgrading implicated companies’ ratings and excluding them from their ESG indexes when problems go unresolved. 

Unfortunately, ESG ratings and index providers, including MSCI, FTSE Russell and S&P Dow Jones, rarely do any of this. 

Systemic reforms are needed to ensure ESG index and ratings products adequately capture and reflect human rights concerns, and to align the ESG investing industry writ large with the UN Guiding Principles on Business and Human Rights. Our recommendations, detailed in our submission, include: 

  1. ESG research and ratings firms must go beyond company self-reporting and corporate policies to assess actual impacts, including testimony from communities affected by a company’s operations. 
  2. ESG research and ratings firms should prohibit the use of amalgamated ESG ratings, which obfuscate salient human rights and environmental impacts. 
  3. ESG ratings should assess a company’s performance in each category in absolute terms, rather than grading companies on a curve against industry peers, as is current practice. 
  4. ESG ratings firms should ensure that the ratings of any company that has caused or contributed to serious human rights violations are downgraded to such an extent that it will be automatically excluded from ESG indexes and funds. The lowered score should persist until the human rights abuses are remedied—regardless of whether the “controversy” fades from the news cycle. 
  5. ESG ratings and index firms should establish effective human rights grievance mechanisms to receive complaints related to companies that are rated and listed on ESG indexes. 

As scrutiny from regulators and investors has increased in recent years, many financial actors have begun making adjustments to their ESG-related products. Our hope is that this shakeup will ultimately lead to truly responsible investing options.  

Our full submission to the UN Working Group is available here.